Changes to Agricultural Property Relief and Business Property Relief

The government has pledged to support farmers and rural communities, with measures designed to help families pass land to future generations.

In the Autumn Budget on 30 October 2024, the Chancellor announced reforms to Agricultural Property Relief and Business Property Relief.

What Is Agricultural Property Relief?

Agricultural Property Relief is an inheritance tax relief that can reduce the tax due on farmland passed down to the next generation.

Business Property Relief works in a similar way, but applies to business assets within an estate.

Budget Announcements

From 6 April 2026, 100% inheritance tax relief will only apply to the first £1 million of combined agricultural and business property.

For any value above this, inheritance tax will be charged at a reduced rate of 20%, rather than the usual 40%.

This tax can be paid over ten years, interest-free, rather than as a lump sum.

Other spousal exemptions and nil-rate bands remain in place. This means that two people with farmland could potentially pass on up to £3 million without inheritance tax.

Example 1: Farm Owned by Two People

Two people co-owning a farm can pass on up to £3 million tax-free to a direct descendant.

This is made up of £1 million each from Agricultural Property Relief allowances and £500,000 combined from standard inheritance tax exemptions, including the £325,000 nil-rate band and £175,000 residence nil-rate band per person.

• Direct descendant: £3 million tax-free
• Non-direct descendant: £2.65 million tax-free, due to the loss of the residence nil-rate band

Example 2: Farm Owned by One Person

A sole owner of a farm can pass on up to £1.5 million tax-free to a direct descendant.

This is made up of the £1 million Agricultural Property Relief allowance and a £500,000 standard tax-free allowance.

• Direct descendant: £1.5 million tax-free
• Non-direct descendant: £1.325 million tax-free, due to the loss of the residence nil-rate band

Why Are These Changes Being Made?

The government says the aim is to better target these reliefs and protect small family farms.

Currently, the largest 7% of Agricultural Property Relief claims account for 40% of the total relief cost, disproportionately benefiting a small number of estates.

These changes are expected to mainly affect the wealthiest 500 estates each year, leaving most small farms unaffected.

Impact on Other Transfer Methods

Exemptions for transfers between spouses and civil partners remain in place, allowing agricultural and business assets to be passed on tax-free.

For direct descendants, a £1 million allowance is available for a primary residence.

Gifts made to individuals more than seven years before death continue to be exempt, with tapering relief applying from three years onwards.

Other Support for Farmers

The Budget also includes £5 billion over two years for sustainable food production, £60 million for flood recovery through the Farming Recovery Fund, and £208 million to protect against serious disease outbreaks that threaten agriculture, food security and public health.